FCC Chairman Tom Wheeler confirmed in a blog post yesterday that he has begun circulating a draft order among the FCC’s commissioners that would mandate the first-ever cap on the total value of bid credits that small business designated entities (DEs) may receive in future FCC auctions that include next year’s incentive auction.
The bid credit cap and other amendments to the DE and competitive bidding rules are scheduled for a vote at the FCC’s next open meeting on July 16. Although the draft order follows on the launch of rulemaking proceedings last year to reform the FCC’s competitive bidding rules, the cap on bid credits and related DE rule changes were spurred in large part by the events of the recent AWS-3 auction in which a pair of DEs backed by DISH Network claimed $3.3 billion in bid discounts. The draft order, however, does not address the right of DISH’s DE partners, SNR Wireless and NorthStar Wireless, to claim the bid credits in question, and the FCC is expected to rule on that issue at a later date.
According to Wheeler, the cap “[minimizes] an incentive for major corporations to try to take advantage of” the DE program, and Wheeler noted that the revamped rules, in general “will increase transparency and efficiency.” During the incentive auction, bid credits will be capped at $150 million for each DE and at $10 million for a new category of rural service providers. For other future auctions, the FCC will establish caps that “will vary on a service-by-service basis based on the capital requirements of the service and the inventory of licenses to be auctioned.” The draft order also prohibits joint bidding arrangements among related parties but allows “bona fide” small business DEs and rural service providers to participate in consortia with other DEs, “resulting in a single bidder.”
While the draft rules allow “non-nationwide” providers to participate in joint ventures with other non-nationwide providers, thus precluding any such partnership among the top four U.S. wireless carriers and smaller entities, the draft order “eliminates the assumption that a lease of more than 25% of the spectrum capacity of any one license to a large business requires revenue attribution to a small business” that seeks to qualify as a DE auction participant. Wheeler explained that the FCC’s policy change on leases is intended to “provide greater flexibility for qualified small businesses so that they can better compete,” as “facilities-based wireless service is no longer a viable business plan for small enterprises.” Although Wheeler also touted the rule change as one that frees “small businesses to make decisions that work best for them,” FCC Commissioner Ajit Pai declared himself “deeply disappointed,” as “those benefitting from taxpayer-funded discounts when buying spectrum should . . . not just lease most or all of it to large carriers.”